What detrmines your RE strategy?

16 Replies

What would you say determines your real estate strategy? Is it your market or your market conditions? For example here in Florida prices may have gone up but foreclosures are still in abundance. When prices are going down foreclosures are even more in abundance. So strategies aiming at little to no equity or in some stage of foreclosure type deals will work year round here. Now in other markets because of current market conditions foreclosures have all but dried up so an investor working in those areas that were going after REO's and such don't expect to much deal flow coming from those strategies so now they are focusing on other niches. Would like to hear your opinion.

The merging of the market, with my exit strategies.

I analyze every property for 5 different exit strategies, and 2 must be workable...or I pass on the deal.  My five strategies are: Flip, Hold, Lease Option, Wholesale, Wild Card.

Joe Villeneuve
REcapSystem
A2REIC

Perhaps I am mistaken, but your question seems to be asking how do you generate leads if REOs dry up. I have noticed that the banks seem to be less interested in selling at a discount in my market, so I have been marketing directly to sellers with postcards. I think that it's a good idea to use multiple strategies simultaneously. You can still search Fannie Mae, Freddie Mac and HUD for foreclosures, while conducting a direct mail campaign, driving for dollars or using bandit signs. Just make certain to measure the results so that you can focus your efforts most effectively in the future.

Stephen 

@Stephen Fryer  

@E. BEAUVAIS  

If the property cash flows, and you are working with cash, (and even if you aren't now you can quickly be in the position), you don't need to get deals.

JV

Originally posted by @E. BEAUVAIS:

What would you say determines your real estate strategy? Is it your market or your market conditions? For example here in Florida prices may have gone up but foreclosures are still in abundance. When prices are going down foreclosures are even more in abundance. So strategies aiming at little to no equity or in some stage of foreclosure type deals will work year round here. Now in other markets because of current market conditions foreclosures have all but dried up so an investor working in those areas that were going after REO's and such don't expect to much deal flow coming from those strategies so now they are focusing on other niches. Would like to hear your opinion.

Rehabbing is all I care to do, I wanna be in and out.  Just as you were saying, here in the Mid-TN area, the foreclosures and real deals have dried up. Now you can always find some ghetto house cheap if that's what you are into. However I have always been into the better houses in the desirable areas.

@Joe Villeneuve  I'm not sure I understand your second comment. You said "if the property cash flows you don't need to get deals" but in order to be in such a position the need to get deals is always there. 

For rentals I always want to know that I can sell the house tomorrow and not lose money.  (I suppose that rule would loosen up a bit if I knew the house would cash flow so incredibly we'll that I could rent it out for six months, then sell it and not lose money.). And really I'd like to think I'd make a little. 

Second, it has to cash flow well enough for me. 

Third, it has to fit my temperament. I get stressed out easily so I don't like properties in rougher neighborhoods. 

@E. BEAUVAIS  

What mean by "...you don't need to make good deals" is you can pay the AP and still make it work for cash flow. With a hold property, the #1 focus is on the cash flow. If I'm paying cash for a deal, whether or not I pay $45k (a deal) or $50k (the AP), since I have 100% equity I can refinance my money out...even if the AP is equal to the LTV/ARV...I just have to wait a little longer to recover the last portion. For example:

$50k AP and LTV/ARV
$40k      REFI at 80%
$  5k     Cash still in deal
$420     Cash flow/month
12         number of months to recover last of Cash in deal

This example was an actual deal I did earlier this year, and is pretty typical.  We would have liked to not have to wait a full year to recover all our cash, but waiting a year to get the cash flow isn't a crime.  We still got $400/month the first year, and will be getting $400/month this year and years to come.

Obviously this doesn't work if you have negative cash flow...at any time.  If you would have negative cash flow, why would you buy the property?

Joe Villeneuve
REcapSystem
A2REIC

@Larry T.  

All excellent comments...and all correct.  My biggest problem, and I'm interested in solving it, is that my market will cash flow "so incredibly we'll that I could rent it out for six months, then sell it and not lose money".

But, to your 1st & 2nd point, I just keep it.

To your 3rd point, I always use a Property Manager, so my stress levels are very low...and yes, you need a really good PM, which I have.

Joe Villeneuve
REcapSystem
A2REIC

Great points by all, I let the market dictate whats working in a particular area. I'm in FL too and Lease Options are pretty hot right now in most areas. The foreclosures are very competitive in the Bay area and may be the same in Jville. REO's are part of bidding wars in which the banks are getting more than what they were asking for, so I have been avoiding most of those. The war zones are doing ok for wholesale, but I'm with @Larry Turowski on staying out of those areas.

@Joe Villeneuve   That's awesome.  And I agree. What ultimately matters is how hard your money is working for you and not whether you make it by buying with equity or by cash flow.

And @e. B

@E. BEAUVAIS  , Joes and @Thomas Mitchell  's comments are a good example of how the opportunities helps determine your strategy. What works in one area may not work in another area. And it may not work in the same area next year.  For instance, flips in my area have become harder to come by the past year or so. You've got to be ready to adjust. 

The OP's question as to the market is how many new folks get lost. When I began I really didn't have a business strategy, didn't really understand the "market" nor much at all about financing RE. Didn't take long to figure out you need more than how to buy, rent, fix and sell a house.

I'd say the reason most start with the cart before the horse in some niche is because that's the "investor education" made available.

Yes, I've had my second cup of coffee, so here we go. Day 1, what are you trying to accomplish, what's the mission, why real estate? Most here are looking for income, they need a job more than long term equity to fund a retirement.

You first need to identify your needs and reasons for being in this industry. From that you can identify what area to become involved in. Before you can really select your target market or niche you need to understand, basically, all of them.

Making immediate money is going to be about buying and selling, obviously. Each  strategy has its own "market". Mixing up strategies or approaches is sometimes required, you don't want to head off making an offer saying I'm going to lease-option the place after adding lipstick as you need to be flexible to take advantage of other opportunities. If you look for a cash buyer you can always sell under terms and if things slow down you can lease it until things improve. You have to keep all options open.

If you're working for a paycheck you must resupply that inventory so you can eat 3 months from now. Since you can become a reluctant landlord you need to understand the landlord side, if you don't want to get involved get a PM. If you can clear $100 a door that's fine, but the real need may be to move on set that up for a future sale and lease it to cover the expenses.

There are many approaches, but if you're in the business for income to live off of you need a mentality of setting up transactions of all kinds on an ongoing basis. While in some markets you might be able to do lease options all the time (after awhile getting them off the ground) but in most markets that will not be possible, you need to be able to operate in any market condition. 

Being in the business making a paycheck is not really investing, but the term seems to be popular and sounds better "I'm a real estate investor".....no, you're a real estate dealer or operator. You're a merchant and no merchant can keep the doors open without knowing his product, knowing his customer and knowing the suppliers. Same thing in RE.

Now, if you're an investor type that can buy a house, sit back and wait ten years, perhaps speculate on values rising that's another aspect, but you'll still need to understand the short term markets along the way and that will indicate the best time to sell.

Hope you got the idea, not writing a book here, but you need to begin or drop back to the basics of RE to understand all the options as they build upon each other and are related in the "market" which drives your strategy. :)   

    

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Thanks for the responses. I primarily get my deals from private sellers with some equity but the majority of leads that we are getting are properties with little to no equity. We focus on quick turn real estate deals so those little to no equity deals are more of a short sale strategy which doesn't work for us because #1 not really a fan of short sales and #2 I wouldn't consider short sales as a quick turn strategy IMO. I am aware their are more ways to convert little to no equity deals but haven't been able execute these strategies in this current FL. market to fit our business model. 

@E. BEAUVAIS  undefined

Mine is buy and hold.  If it cash flows after all expenses around $100 a door then I'm in.  But, my goal is to achieve $10k a month in rental income after all the debt service is snowballed regardless of market conditions.  

@Bryan N.  Same ultimate strategy as mine...buy to hold, but for me if I don't get $400/door, I'm  looking for a different property.

Joe Villeneuve
REcapSystem
A2REIC

@Joe Villeneuve  

Nice price per door.  But, my market doesn't command that kind of return.  Even if it did/does it would probably deal with clientele I don't want to entertain.  I think the important thing is buy/hold to achieve a passive income level that makes life comfortable.  It could be $20 a door or $500 a door.  Once an income level is achieved KILL the debt and sleep good at night.  

@Bryan N.  You are of course correct when you say, "Once an income level is achieved KILL the debt and sleep good at night."  

Cash flow is everything.  I used to think $100/month was great, but all you need is to have one late payment, or a vacancy, and you have problems.  If I had $100/month CF, I'd be focused on flipping for cash profits to buy my holds with all cash, thus having only the T/I (+ misc exp) every month to deal with.  If I have a vacancy, it doesn't hit me as hard with no mortgage payment.

Now this strategy goes against everything I believe in, as far as leveraging my deals, but with a low CF I can't afford to take on the mortgage every month there was no rent check coming in.

My favorite strategy is buy with cash (even a partner's cash), then refinance that cash out and use it again on the next deal, and keep repeating this.  Since I can get the previously mentioned $400/month doing this, I only need 10 houses and I'm at $4,000/month.  Also, since I would refinance the last house in line, I would get my cash all back in the end, so I would never actually spend it...no matter how hard I tried.

Joe Villeneuve
REcapSystem
A2REIC

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